Postal Savings Bank is worst at creating shareholder value, says McKinsey
Report highlights heavy reliance on interest income and deteriorating asset quality among the challenges facing mainland banking industry
Postal Savings Bank of China, which launched the world’s largest initial public offering of the past two years in Hong Kong, has become the worst among the mainland’s top 40 lenders at creating value for shareholders, said an industry report on Wednesday.
The mainland banking industry as a whole is facing challenges including heavy reliance on interest income, deteriorating assets quality, questionable coverage on impairment, and polarising return on capital among different groups, according to the study by McKinsey & Co.
Beijing-based Postal Savings Bank, with an economic loss of 8.3 billion yuan, was the poorest performer
Postal Savings Bank led four lenders in reporting economic losses, a key indicator of whether a listed firm is generating shareholder value, based on analysis of banks’ financial data in 2015, the consultancy giant said in a report looking at who is creating and destroying value among the nation’s top 40 banks. Economic profit was one of two main indicators used by McKinsey in the evaluation, the other being risk-adjusted return on capital (RAROC).
The 40 banks created 494.3 billion yuan of economic profits between them, with an average return on capital of 20 per cent in 2015, the report said.
Beijing-based Postal Savings Bank, with an economic loss of 8.3 billion yuan (HK$9.6 billion) in 2015, was the poorest performer in terms of economic profits and the second-weakest by RAROC, the report found.
Economic profits, different from accounting profits, refer to the difference between revenue and opportunity cost - the value of the trade-off when a decision is made. Thus, a company can report a significant accounting profit with little or no economic profit.